Sugar trade: just get out of the way!

Pakistan has moved from worrying about a sugar shortage to dealing with a sizeable surplus within the space of a year. Production in MY26 is up around 32 percent from last year, retail prices remain materially below their December 2025 level, inventories are heavy, and another large cane crop is approaching the market.

The debate, predictably, has shifted to how much sugar the government should “allow” mills to export. Industry estimates put stocks above 3 million metric tons (MMT) at end-July, with a sizeable carryover likely before the next crushing season, while mills and growers are increasingly pushing for exports to prevent inventories from spilling over into weaker cane procurement and delayed farmer payments.

The government’s hesitation is understandable given what happened during the previous cycle.

Sugar exports were allowed, domestic prices subsequently increased, and the government eventually had to arrange imports of roughly 0.3MMT, leaving policymakers reluctant to approve another round of exports only months after intervening on the opposite side of the market.

That experience, like clockwork, continues to be interpreted poorly. The problem is never that sugar was exported and prices subsequently rose; the problem remains that policymakers continue to treat every movement in sugar prices as something that must be administratively managed, thereby ensuring that trade decisions are taken late, incentives are distorted, and one intervention eventually creates the justification for the next.

Pakistan does not apply the same logic to most other tradable commodities. Rice exports are not suspended whenever domestic rice prices increase, cement manufacturers are not required to seek permission because local cement prices respond to export, and textile exporters are not asked to demonstrate that sufficient cloth has first been reserved for domestic consumers before accepting foreign orders.

There is no compelling economic reason why sugar should be treated differently. It is a privately produced, internationally traded commodity, and its domestic price should reflect the interaction between local production, consumption and international prices, rather than an administrative judgement over how many tons may be exported or imported in any particular month.

If exports tighten domestic availability and push local prices above import parity, commercial imports should become increasingly attractive. Conversely, when domestic production is strong and local prices weaken relative to international markets, exports should become profitable, allowing the trade balance to adjust without waiting for an ECC approval, a ministry recommendation or another negotiation between government and the sugar industry.

The present situation demonstrates the shortcomings of the existing framework rather neatly. Pakistan imported sugar after domestic prices rose sharply last year, yet production has since rebounded close to historical highs, retail prices have remained around 15 percent below December 2025 levels through much of CY26, and mills are now carrying stocks into another large crushing season.

Private producers still require permission to export that surplus, even as the government itself attempts to dispose of sugar imported through TCP during the previous shortage. There is an obvious policy contradiction in restricting exports of locally produced sugar while trying to re-export government-owned imported sugar that became surplus precisely because the domestic supply situation changed faster than the administrative response.

This is also why proposals for better-designed export quotas or more sophisticated stock thresholds miss the larger point. Replacing discretionary controls with slightly more intelligent discretionary controls would still leave bureaucrats deciding whether 0.3MMT, 0.6MMT or 1MMT should leave the country, even though prices are better placed to perform that allocation.

The government should instead move towards unrestricted commercial imports and exports, allowing trade to respond continuously to relative prices rather than episodically to political pressure. If domestic prices rise after exports increase, that should not automatically be treated as evidence of policy failure, because higher prices are precisely the signal that encourages additional production, discourages marginal consumption and eventually makes imports commercially viable.

Consumer protection is often used to justify the current arrangement, but that argument also deserves closer scrutiny. If the objective is to protect low-income households from food-price shocks, the appropriate response is targeted income support or social protection rather than suppressing the price of sugar across the entire economy, including for consumers who do not require a subsidy.

There is also a wider agricultural-policy issue that becomes more important once trade is liberalised. Sugarcane production reached roughly 89 MMT in FY26, while acreage has continued to expand into areas where cane competes with cotton and other crops for irrigated land, suggesting that future production gains should increasingly come through better varieties, improved sucrose recovery and higher output per unit of land and water rather than continued acreage expansion.

The broader deregulation agenda should therefore proceed alongside trade liberalisation. Government claims to have withdrawn from administered cane pricing, but licensing restrictions and zoning rules persist, while concentrating instead on enforcing timely farmer payments, competition law, contractual obligations and market transparency, which are legitimate regulatory functions rather than attempts to determine commercial prices.

The distinction matters because deregulation does not mean the absence of regulation. It means regulating market conduct where abuse, collusion or contractual failure exists, rather than regulating trade simply because prices move in a direction that becomes politically uncomfortable.

Pakistan’s sugar policy has repeatedly moved between export permissions, export restrictions, emergency imports, concessional import treatment and subsequent attempts to dispose of excess stocks. The cycle persists because every price movement is treated as a reason for intervention, even though the interventions themselves weaken the very price signals required to bring supply and demand back into balance.

The current surplus provides a useful opportunity to change course while the market is relatively comfortable. Production is strong, stocks are ample, prices are soft and the next crushing season is approaching, making this the right time to remove discretionary trade controls rather than negotiate another temporary export allowance.

The objective should not be to determine how much sugar can safely be exported this year. It should be to reach a point where nobody needs Islamabad’s permission to export or import sugar in the first place.